We recently had someone apply for a USDA Loan who only had one credit score. They had been told by several other loan officers in NC that even though the one score they have is over 680 – they could not get a USDA Home Loan with only one credit score. Not so fast! WE can do a USDA Home Loan, with only one credit score over 680, however, there are many hoops that you will need to jump through! The credit rules for USDA Loans changed December 1, 2014
USDA Loans are perfect for people who want a house in a little more rural part of North Carolina. USDA Loans have no down payment requirement, and Sellers can pay closing costs… meaning you can buy a home with a USDA Loan with PENNIES out-of-pocket! The payments and Mortgage Rates for USDA Loans are some of the lowest available.
Because there’s no down payment, the Government does require a slightly higher credit score than some other mortgage programs. However, minimum Credit Score requirements for USDA Loans 2014 can go below 640, if you have three credit scores. If you only have one credit score, we can no longer do a USDA Loan and we will need to build credit for you. In GENERAL – the new Underwriting guidelines for USDA Home Loans got tighter, and they are NOW looking for at least 2 scores OVER 680.
We can establish alternative credit sources, and create a non-traditional credit report. The non-traditional credit sources can include Mobile phone bills, for instance, or cable bills, car insurance, water bills will also work. However, keep in mind the scores we get, when building this type of credit are typically LOWER than traditional credit scoring model.s
For those who currently pay rent to a non-family member, we are required to obtain references from three non-traditional trade lines. We can include the rent payments (in this case) as one of the three trade lines.
We are required to have at least a 12 month history on each of the trade lines we use, and you must currently be under contract with them. Meaning, I can’t use AT&T as a non traditional credit source if you are now using Verizon. Hoping this makes sense, but in this mobile carrier example, you would need to have a 12 month history of on time payments with Verizon for me to be able to count them.
If you have not being making rental payments through a third party – then we are required to get credit history from four non-traditional sources of credit. Again, the credit sources from each of these sources, must be “open” (currently obliged to pay them on a regular basis) and have a twelve month history.
Unfortunately, USDA Home Loan Underwriters do not allow Non-traditional credit sources to “enhance” poor payment records or low credit scores. This is to be used ONLY when a borrower only has ONE credit score. So, you WILL need to have at least one credit score for this to work, and that score needs to be at least 680 (which is higher than it was just last month…). Often times, someone who has borrowed something from a Credit Union, or a smaller, rural car lot will have this situation – simply because the creditor does not do the paper work to report to more than one credit agency.
Collections will need to be paid off for a USDA Home Loan, even if it is a Medical Collection. FHA Home Loans do not require Medical Collections be paid before closing, however, USDA Loans do. Deferred Student Loans are also treated a little differently by USDA Loan Underwriters.
Don’t have a 680 credit score? We can make USDA Home Loans to folks who have all three credit scores, and have a score below 680! Here are some fairly quick things you can do RIGHT NOW to increase your credit scores:
- Don’t apply for any more credit. Especially if you’re in “repair” mode – as you will likely get turned down. In fact, the SMART thing to do is to sign up for Opt Out Pre-Screen. This should improve your score by 15 to 30 points! (and it’s FREE!).
- Don’t CLOSE credit cards that are open! This is a critical point!
- OPEN A SECURED CREDIT CARD; okay so I know this seems strange. I just said DON”T open credit, then I said DO open credit… it depends on your situation. If you have pretty rough credit, and not many open (read no) open credit cards – then go get 2 Secured Credit Cards. It will cost you $75 for each one, or maybe a little more, but it is worth it. This is the FASTEST thing you can do to help your scores!
In the past – we could add someone to an existing credit card account in order to boost the scores. We can STILL do that – meaning your folks could add you to a credit card they have, for a NC Advantage Loan (which has a grant program and still doesn’t require a down payment) but not for the USDA Home Loans. That is another of the changes that went into effect on 12/1/2014
Have more questions about USDA Home Loan Only One Credit Score? Call Us 919-649-5058, or leave a comment below. To find out if you qualify for a USDA Home Loan in NC call Steve Thorne (919) 649-5058. We work with hundreds of families using this program each year here in NC!